A target fish is a fish that will be felt to be competition by the main fish for breeding resources, be it the substrate, a smooth rock, a cave or a vertical leaf. The choice of a proper target fish species will depend on common needs regarding water (PH, temperature, hardness).
Not all fish need target fish in order to breed but some aquarium fish just don’t get in the mood unless they feel some competition for resources. I have successfully bred and raised the fry from Angelfish, Kribensis, and Gourami without the intentional use of target fish but these were all in a community tank so perhaps they all served as each other’s “targets”.
Target fish may be kept in the same tank and allowed to roam freely or be kept sequestered behind a clear screen for protection. They may even be kept in an adjacent (but they must still be visible to the main fish) tank at times. If kept together in the same tank with no barriers then their degree of aggressiveness, size and feeding assertiveness must also be considered and evenly matched. Even if separated by a barrier, size should be about the same to be most effective.
It helps to know your fishes breeding strategies. A fish that guards a cave (Kribensis) will not feel threatened by a fish who guards a vertical leaf (Angelfish) or a fish who places eggs in a bubble nest (Gourami ). Feeling threatened that the resources needed for successful breeding may be lost will often help push fish into breeding behaviors. (“I’m going to get mine before you get yours”). With some fish, the best target fish are others of the same species; with others this would just induce too much aggressive behavior until someone dies, either from a direct strike or from stress. With some fish, simply being in a crowded tank (but with clean water and plenty of food - there is a perceived lack of resources without really threatening the fish’s health) serves the purpose of a “target”.
Target fish can also help deflect some of the aggressive behavior of the male away from the female of a breeding pair.
Both target fish and the main fish need to have their own “home” area within the tank. By their very nature, fish who need target fish are territorial and when breeding are even more so.
In my current tank (40 gallon fresh, mostly Amazonian) I have a pair Blue German Rams I'm hoping will decide to make babies.... The female ram has a red belly which I've red is a breeding indicator for this species. I bought a Kribensis hoping to eventually get a pair but this one is meanwhile serving as a great target fish. I think it must be a male - in this species the males get the red belly at breeding time. His belly has a very slight pink to it. But the reason for this long story is this. The female Ram really chases the male Krib a lot. I think SHE thinks he is a female Ram because of the red belly. The male Ram is just ignoring them both.